Major News and DevelopmentsCopper market witnessed production deficit of 83,000 mt in Mar’14 – ICSGData from the International Copper Study Group (ICSG) showed that the refined copper market balance for March 2014 witnessed an apparent production deficit of 83,000 metric tonnes.The refined copper balance for the first three months of 2014 indicates a production deficit of 205,000 t compared with a production surplus of 206,000 t in the same period of 2013.In the first quarter 2014, world usage is estimated to have increased by around 14% (365,000 t) compared with that in the same period of 2013, supported by strong apparent demand in China.Chinese apparent demand increased by 29% based on a 70% increase in net imports of refined copper from the low net import level in first quarter 2013 and consequent lower apparent usage.Excluding China, world usage increased by around 4% supported mainly by usage growth of 12% in the EU and 16% in Japan. However, comparative usage in the first quarter 2013 remained 6% lower in the EU and 7% lower in Japan than the first quarter 2012 level.World mine production is estimated to have increased by around 4% (185,000 t) in the first quarter 2014 compared with mine production in the same quarter of 2013.China aluminum smelters suffer loss of RMB5.26 billion in Jan-Apr’14According to the latest report by the National Development and Reform Commission (NDRC), China's aluminum smelters in the first four months of 2014 suffered a loss of 5.26 billion yuan which increased by 3.24 billion yuan from a year earlier.The report indicated towards continuous fall in aluminum prices and increase in production costs to have resulted into the industry-wide losses.In the first four months of 2014, the country yielded 7.69 million metric tonnes of electrolytic aluminum, up 8.5 percent year on year.It imported about 200,000 tonnes of electrolytic aluminum, up 200 percent year on year as the price inversion at home and abroad and aluminum financing stimulated the jump.The aluminum stocks during the period fell 10 percent year on year to about 1 million tonnes, according to the report.Global Zinc market witnesses 107kt deficit in Jan-Apr’14 – ILZSGAccording to preliminary data compiled by the ILZSG, the global market for refined zinc metal was in deficit by 107kt over the four months from January to April 2014 with total reported inventories declining by 123kt over the same period.Global zinc mine production was a marginal 0.4% higher than the same period in 2013 with decreases in Canada, Ireland and Peru almost balancing increases in China, Mexico and the United States.A rise in world output of refined zinc metal of 4.1% was primarily a consequence of higher production in Belgium, China and India.Increases in apparent demand of 12.4% in China and 23.8% in the Republic of Korea were the main drivers behind an increase in the global usage of refined zinc metal of 7.5%. Demand in Europe declined by 0.9% and in the United States, rose by 2.8%.Chinese net imports of refined zinc metal increased by 38.8% to 261kt.

Lead market in deficit in the first four months of 2014 – ILZSGProvisional data reported to the ILZSG indicate that world demand for refined lead metal exceeded supply by 12kt during the first four months of 2014. Over the same period total reported stock levels declined by 33kt.Global lead mine output was 1.3% higher than the corresponding period in 2013 due primarily to increases in Australia, Mexico and the United States that more than balanced reductions in Canada and China.A reduction world refined lead output of 4% was primarily a consequence of falls in production in China and the United States.Similarly, a sharp drop in Chinese apparent demand for refined lead metal of 10.3% was the main influence on a reduction in global demand of 4.6%. Usage in Europe increased by 3.9% and in the United States fell by 2.6%.Chinese net imports of lead contained in lead concentrates increased by 12% to total 270kt.Zinc prices surged to 16-month high in June’14 - ReutersZinc hovered near its highest levels in 16 months as investors eyed falling stocks and a pending mine supply shortfall next year.London Metal Exchange showed zinc stocks fell 1,100 tonnes in a day to 694,650 tonnes - their lowest level in 4-1/2 years.One of the world’s largest zinc mines, Century zinc mine in Australia is expected to run dry in mid-2015, while its nearby Dugald River mine is expected to miss its start date of late 2015 due to poor ground conditions.Price Performance Base Metals

Base metals on the LME apart from Nickel traded higher in June taking cues from signs of US economic recovery as indicated by the Federal Reserve in its statement that signaled raising interest rates in 2015. Also, favorable economic data from China supported prices.Adding to positive momentum was China's rising production of base metals which includes copper, aluminium and zinc in May. This rising production is a result of incremental demand in the world’s biggest consumer which indicates optimism even as the overall economy cools.However, sectarian war in Iraq led to deteriorating global market sentiments. Euro Zone economy portrayed uneven recovery picture with falling manufacturing numbers on one hand and rising industrial production on the other. These factors capped the momentum.On the inventory front, Copper inventories plunged the most by around 9.5 percent whereas Nickel was the biggest gainer for the second consecutive month in a row with stocks rising by a whopping 7.3 percent.As can be seen from the above figure, Nickel was the only base metal to have registered negative performance which could be largely attributed to build up in stocks.In the Indian markets, prices largely traded higher owing to Rupee depreciation by 1.5 percent.

CopperCopper, the leader in the base metal pack surged by 3 percent in June continuing its rally for the second consecutive month in a row largely owing to halt in concentrate exports for the past five months by the twominers, Freeport MacMoRan and Newmont. These two which account for 97 percent of Indonesia's copperoutput. The curb was announced owing to controversial tax by Indonesia which is part of a government drive to force miners to build smelters and processing plants in Southeast Asia's largest economy. Both the companies argued they should be exempt from the tax, which kicks in at 25 percent and rises to 60 percent in the second half of 2016, before a total concentrate export ban in 2017 and since no consensus was met on the same, Newmont declare force majeure and Freeport slashed output. Further, efforts by the Chinese government to boost slowing economic growth by way of 0.5 percentage point cut in the reserve requirement of banks including national lenders such as China Merchants Bank Co. and Industrial Bank Co acted as a supportive factor. According to trade sources, Chinese importers are turning to purchases of refined copper for near-term delivery to Shanghai as banks tighten credit for buying from bonded stocks following a suspected metal financing scam at China's Qingdao port. The increased demand has pushed up premiums of refined copper by about 20 percent and could boost July imports of copper by the world's top consumer of the metal. According to figures released by customs administration, Copper imports rose 21.89 percent to 282,696 tons in May 2014. Recovery has been seen in the US and China, the biggest consumers of Copper, China’s manufacturing sector expanded, although slightly, in June as operating conditions improved for the first time in six months followed by an expansion in the US PMI driven by the fastest growth in output and new orders in over four years. This factor provided a much needed boost to copper prices.

Hedge funds and money managers regained confidence in Copper since May’14 and turned bullish after 3 months of selling spree. However, the momentum was broken in mid June when probe in Qingdao port highlighted the loopholes in the Chinese lending market and led to tightening of credit related to financing deals involving Copper. Recent strength in the CFTC positioning indicates that optimism in copper as an asset class has regained.AluminiumAluminium prices in the international markets have gained momentum for the third month in a row, as itsurged by around 3 percent last month. This could be largely attributed to statement by one of the world'sbiggest aluminium producers Rusal Plc that LME aluminium stocks have dropped to the lowest levels in 13months. The Russian aluminium giant Rusal had also forecast that the market is expected to witness deficit of about 1.2 million tonnes this year followed by a further deficit of 985,000 tonnes in 2015 due to strong demand and capacity cutbacks by producers. In turn, this will help reduce the inventories of more than 10m tonnes that have built up at LME and non-LME warehouses. To add to the deficit woes, Indonesia’s ban on exports of raw material is likely to lead to shortage of the metal as 10 per cent of global bauxite supply came from Indonesia before the ban. On the flip side, supply side has witnessed gains in May as can be seen in figures released by the National Bureau of Statistics and International Aluminium Institute.Data from the National Bureau of Statistics showed that the production of primary aluminium in China inched up 0.2 percent to 1.898 million tonnes in May after falling 4.5 percent on-month in April. This was possible largely owing to firm prices that prompted aluminium smelters to stop closing high-cost capacity, and some smelters to restart some idle capacity. More such restarts are expected in the southwestern province of Guizhou after the government agreed to give a subsidy on electricity to aluminium smelters as part of efforts to boost the local economy. At least two large smelters in Guizhou started reopening some closed capacity between the end of May and early June. This could be seen in higher primary aluminium output in May which rose 5.7 percent from a year earlier and 7.9 percent year-on-year surge to 9.588 million tonnes in the first five months of 2014.In addition, figures released by the International Aluminium Institute (IAI) showed global primary aluminum output, excluding China, averaged 67,500 mt/day in May, up from a revised 67,300 mt/day in April. Total production in May was 2.093 million mt, up from a revised 2.020 million mt in April. Production for the first five months of 2014 was 10.108 million mt, at an average rate of 66,900 mt/day, compared with 10.312 million mt at an average rate of 68,300 mt/day in January-May 2013.Further, probe into warehousing deals in Qingdao port in China has raised concerns regarding the use of the light metal as collateral in financing deals. Around 400,000 tonnes of aluminium has been pledged in Qingdao Port’s Danang subsidiary, but about perhaps as little as an eighth of it actually exists. There are just 50,000-80,000 tonnes of aluminium in the port, according to estimates by cargo owners, warehouse firms and banks active in the city in China's eastern Shandong province.After declining for the initial 3 months of 2014 owing to concerns of supply glut, the light metal has managed to gain in the latter 3 months owing to supply cut by the biggest producers and falling inventories overweighing rising supply in China and warehousing probe concerns.

NickelAfter trading higher for continuous five months in a row, Nickel prices declined by around 1 percent in June, and its worst performance in the first half of 2014. Losses can be attributed to warranting of 19,578 tonnes of metal into London Metal Exchange warehouses, the highest single day inflow which pushed LME nickel stocks to hit an all-time high of 305,970 tonnes. As a result, last month, inventories jumped by a whopping 7.4 percent to 305,256 tonnes.Although global nickel market is steadily tightening thanks to the Indonesian ban on nickel ore exports, the process will be slowed by the stocks that have accumulated over the past few years which has turned out to be a speed breaker for the skyrocketing prices of Nickel.INSG bulletin showed that Nickel surplus has dropped down to 1,900 tonnes for the month of April. The cumulative January-April surplus has shrunk by around 75 percent to 12,550 tonnes from 51,040 tonnes in the same period of last year. This supports a consensus view that the trickle-down effect of the ore ban on Chinese NPI production is now starting to happen. Despite this, real impact is yet to be seen as stocks of nickel ore at Chinese ports are slowing the process.As a result, prices declined on speculation amongst the investors that the prices have over rallied ahead of expected shortages due to an Indonesian export ban.However, Nickel had recovered from two-month lows on renewed concerns over disruptions in Russian supply, given what appears to be a harder line being taken by Moscow over gas supplies to Ukraine, and the potential for a tougher response from the United States over sanctions.

OutlookFor July’14, we expect base metal prices to trade higher taking cues from favorable manufacturing data from China and the US. Recovery in the US job market will be a supportive factor.Copper prices are likely to trade higher as the US employment scenario indicates a strong recovery thereby affirming positive demand outlook for the metal. Chinese importers are turning to purchases of refined copper for near-term delivery to Shanghai as banks tighten credit for buying from bonded stocks following a suspected metal financing scam at China's Qingdao port. This increased demand has pushed up premiums of refined copper by about 20 percent over the last week of June and would likely boost July imports of copper by China.Aluminium prices will likely gain as Japan, which is Asia’s biggest Aluminium importer, is expected to witness jump in demand for aluminium rolled products by 0.6 percent this business year to March 2015 from a year earlier to 2 million tonnes on robust export demand to China and Southeast Asia. In addition, production cuts that includes Alcoa's shutdown of Point Henry in Australia, its Massena East smelter in New York with combined capacity of 315,000 tonnes as well as closures of another 147,000 tonnes of capacity at two smelters in Brazil. Supplies also remain tight owing to persistent appetite for financing deals backed by aluminium and logjams in releasing metal from storage.Although, Nickel prices declined in June price trend will likely reverse and trade higher this month given strong recovery in the US economic scenario with employment numbers touching a six year high. Further, accumulated Chinese stocks will be used up by the end of this month, depleting the inventories thereby leading to concerns over future supplies.